Is Cash For Clunkers cannibalizing future sales?

When car manufacturers fell in love with rebates, some car dealers found that these programs didn't increase sales very much; they simply drew the shoppers who intended to buy in the near future. I wondered if Cash For Clunkers might be doing the same thing, leading to a sharp decline in sales after the program ends. I had the opportunity to pose this question and others to an expert in the field, AOL Auto's Editor in Chief Reilly Brennan.

Do you think Congress will renew the program?Yes, Brennan replied. He said that, after the incredible losses dealers suffered recently, the Cash For Clunkers program has affected them like a market Oxycontin, and it will be painful to wean them off the drug. He also expects a Cash For Clunkers Version 2 proposal, perhaps with less funding, in the fall.

What about the notion that this program is cannibalizing future sales?"The sales vacuum is a concern," according to Brennan, "but many believe the opposite has happened- that there was a pent-up demand over the past six months -- so instead of pulling late '09 sales early, this could be pulling early '09 sales later on." He believes that plenty of customers are still out there ready to take advantage of the program when it is refunded.

Do we have enough inventory to fulfill the demand?While some dealers are reporting shortages on the most demanded models, he says, generally the industry still has a good supply of cars in inventory. He is concerned that the auto industry might overreact to this burst in sales by returning to 2007 production levels, because the demand won't return to that height and the manufacturers could end up with an inventory problem yet again.

Who is benefiting most from the program?The Ford Focus has been the leader in CFC sales. However, he says, none of the American manufacturers have a full line of small cars at incremental price points such as those offered by Nissan, and this is could be a lost opportunity. Chevrolet, for example, currently competes best in the $20,000 + range.

What surprises you about the Cash For Clunkers program?Many C4C vehicles (most, actually) are small vehicles - in such a way that is actually out of trend with the market for the most part. If the vacuum theory is true it means C4C has done two remarkable things: pull money ahead and also change consumer purchase behavior.